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Qatar Talks Tough on Project Stakes in Japan LNG Contract Talks

May 30, 2017 | Reuters

DOHA/LONDON, May 30 Qatar Petroleum is warning Japanese natural gas buyers not to press too hard in long-term supply talks or Japanese companies could be squeezed out of Qatar’s LNG projects, sources have told Reuters.

Qatar faces rising competition from a tide of new LNG from sources including Australia, which is expected to surpass it as the world’s top exporter by 2019.

That has emboldened buyers as they look for lower prices and more control via shorter contracts and the rights to divert or resell unwanted cargoes, for example.

In Japan, QP, which owns producers Qatargas and Rasgas, counts on customers led by JERA, a joint venture between Tokyo Electric and Chubu Electric.

In the current contract negotiations with Japan, at stake are annual supplies of 7.2 million tonnes of gas expiring in 2021 worth some $2.8 billion, or 10 percent of QP’s output.

Underscoring the depth of Qatar’s ties to Japan, Marubeni Corp and Mitsui & Co each own 7.5 percent stakes in the three-train Qatargas I project.

Mitsui also holds a 1.5 percent stake in Qatargas 3.

“If Japan pushes too hard or decides to buy LNG from other buyers like Australia, Qatar has said it could force Japanese companies out of their stakes in Qatargas projects,” a Japanese diplomat told Reuters.

A QP official confirmed supply renewal talks may impact Japanese ownership stakes in Qatar’s LNG projects.

Marubeni and Qatargas did not return requests for comment. JERA declined to comment.

Losing its foothold in Japan would force QP to seek sales among less creditworthy buyers in Africa, the Middle East and south Asia which are riskier to deal with.

Its status in Japan is already under threat, with its market share falling 17 percent last year while Australia’s jumped by 20 percent, customs data showed.

One advantage Qatar still possesses is as the lowest cost producer it can undercut on prices.

“Chubu (Electric) has enough contracted supply from Australia and the United States to manage without Qatari supply if they wanted,” a source at a Japanese trading house said.

TOUGHER TERMS

Japanese importers value longstanding business ties with Qatar and are unlikely to drop deals altogether, but the utilities are insistent on introducing more buyer-friendly terms, a Japanese trading source said.

“The flexibility to divert and cancel shipments will be one of the main demands from Japanese buyers who see themselves becoming more like traders in the years ahead,” the source said, in particular reference to JERA.

Reducing volumes, shortening deals from the current 25 years, and aligning pricing formulas with market conditions will also be important, he said.